RI agency: Suit against Schilling should go ahead

PROVIDENCE, R.I. (AP) -- Rhode Island's economic development agency says there is "crushing evidence" that former Boston Red Sox pitcher Curt Schilling and others concealed financial information about his now-defunct video game company and that its lawsuit against them should be allowed to move ahead.

Max Wistow, an attorney for the Economic Development Corp., on Monday filed documents in Superior Court responding to last month's request from Schilling and a string of other defendants that the suit be dismissed.

The 269-page filing says the defendants' main argument — that the EDC board that approved a $75 million loan guarantee for 38 Studios in 2010 was aware the company wouldn't have sufficient funds to complete its video game project — is false and what it calls a "red herring." The filing says the board was, in fact, not informed about a financing shortfall and, as the initial lawsuit claims, was misled into approving the deal.

Wistow declined to comment on the filing other than to say he feels "very comfortable with our responses" and looks forward to a May 22 hearing before Judge Michael Silverstein on the parties' arguments.

The quasi-public EDC sued Schilling, several executives at 38 Studios and some of its own former employees — the very architects of the deal — in November, five months after the company went belly up. Its collapse into bankruptcy left the state responsible for some $100 million related to the agreement, once interest is factored in. The suit alleges fraud, racketeering and conspiracy, among other things.

Attorneys for Schilling and the other 38 Studios defendants — including the former chief executive and financial officers as well as the board chairman — said in their own filings last month that company officials repeatedly disclosed the company's financial needs. They noted that the initial suit says former EDC Executive Director Keith Stokes and others at the agency, including two law firms working for it, knew 38 Studios needed the full $75 million to produce its video game in Providence, but that it was getting only about $50 million because some was to be kept in reserve.

The EDC board is required by state law to make sure a project has sufficient funding lined up. The filing says the defendants "seek to get out from under the crushing evidence of their concealment of 38 Studios' deficient finances" by claiming that the legal requirement for adequate funding "can be satisfied by a hope and a prayer that 38 Studios would find more money somewhere." The defendants knew or should have known — but did not tell the board — that 38 Studios would run out of money, according to the suit.

38 Studios, named for Schilling's jersey number when he pitched in Boston, relocated to Rhode Island from Massachusetts as part of the loan guarantee deal. Former Gov. Don Carcieri, Stokes and others at the EDC contended at the time that it was a coup for the economically struggling state because it would bring hundreds of jobs. Critics said it was far too risky an investment for the state.

A message was left Monday for an attorney representing Schilling. David Martland, who represents Stokes, said he had not looked at the filing yet but would have no comment on pending litigation. Schilling and Stokes have both called the lawsuit political.

The initial suit doesn't seek a specific dollar amount, but the agency wants Schilling and the other defendants to repay the bonds and seeks triple damages.